The Long Tail of PayPal MAR 14 2005

While setting up the contribution mechanism at PayPal, I got to thinking about how PayPal is (or certainly has the potential to be) a Long Tail business. With lots of features, extensive documentation, tons of implementation examples, and no up-front fees, they make it so easy to sell anything to anyone worldwide that the cost of doing business for individuals and small businesses is almost nothing. My friends Tamara and Julie make soap in their apartment and sell it online for a few bucks a bar, with PayPal handling the checkout process and some of the order fulfillment stuff as well. And there are millions of little cottage industries like this scattered across the web, businesses enabled by PayPal each selling maybe a few items a week or month.

However, there are a couple of issues with PayPal's attempt to harness the Long Tail of online retail. Shipping costs are proportionally more expensive for less expensive items...it's roughly the same price to ship a $350 iPod as it is to ship a $20 book or tshirt. PayPal's fees are a bigger percentage of the total sale for cheaper items as well; they take $0.30 right off the top. That doesn't sound like a lot but for a merchant selling $3.00 items, that's 10% less gross (and a more significant percentage of profit), which could be a bit of a deterrent in wanting to sell cheap items through PayPal. It'll be interesting to see if PayPal sees a Long Tail effect benefiting their bottom line and tinkers with the fees to encourage more cheap offerings.